The Great Recession: 10 Years After
It was 10 years ago last weekend that Lehman Brothers closed its doors, signaling the “official” beginning of the financial freefall that we now refer to as the Great Recession of 2008. RSR had opened for business one year prior, in 2007, and if our crystal ball had been a little more clear, I’m not sure the RSR partners would have taken that risk. But while we have weathered through the ensuing years, not every business did as well. And the Retail industry has changed irrevocably.
Let’s take stock of all that has changed in 10 short years.
One of the hallmarks of the Great Recession was that it wasn’t “just” a performance downturn, a slackening of demand triggered by inflation or slow job growth or some other trend affecting companies’ profitability (and thus their employees’ job status and/or pay, and thus the consumer economy). The Great Recession attacked the underlying capital infrastructure of the economy as well. Oceans of cash “just disappeared”, becoming unavailable to businesses and consumers alike. Everyday people (including just about everybody I know) lost somewhere between 20-40% of the value of their retirement portfolios, and some of my acquaintance lost their jobs, cars, and houses.
The long and short of it is that the Great Recession was as big of an event to today’s youngest adults as 9/11 was to Millennials and the assassinations of the Kennedy brothers and Martin Luther King were to Baby Boomers. It didn’t just affect our lives for a few years, it affected our outlook. Consumers had to develop new shopping disciplines, and make fewer discretionary dollars go much farther than ever before.
But aside from that obvious impact, other things happened at around the same time that profoundly shook the Retail industry in ways that are still having a huge effect.
Number one, the iPhone was introduced to the marketplace in 2007, followed by the release of the far-less-expensive Android alternative in 2009. It’s hard to overstate what that did to the Retail industry. When the iPhone came out, only 6% of the U.S. population had a smart phone. That number almost tripled by the end of 2009 (17%), and more than tripled again by the end of 2012 (54%). And what consumers did with those smart mobile devices was to shop “smarter”: to compare prices, as well as read reviews and check availability for the products they needed. Even now in 2018, the majority of retailers rate “consumer price sensitivity” as one of their top business challenges.
Consumers had to make their money go a lot farther than before the Recession, and so they developed smarter shopping habits that are still having an impact today. In 2007, Arkansas retail giant Walmart took notice, and abandoned some of its more upscale ambitions and re-branded its offer to be “Save money. Live better." That move turned out to be timely. As then-company president Lee Scott proclaimed in 2008, “This is Walmart time!”
Walmart’s share of the U.S. market rose to its high water mark in 2009 (to 12%), just as Lee Scott predicted. But in the next year it too felt pressure from new challenges created by the Recession, and in 2010 the company saw its percentage of the total U.S. market drop. But many other retailers fared much worse. Between 2008 and 2012, such brands as Circuit City, Linens-n-Things, Friedman’s, Blockbuster, and Borders, closed their doors forever (and that’s just a partial list).
That wasn’t all – suddenly there was new competition that took advantage of consumers’ tight budgets and newfound digital empowerment. Seattle-based e-Commerce company Amazon.com saw its topline revenue more than double between Q1 in 2007 ($3B) and Q1 in 2009 ($7B), and almost double again by Q1 2012 ($13B). This wasn’t only an American phenomenon; for example, Chinese e-Commerce retailer Alibaba tripled its revenue between 2010 (6670 million yuan) and 2012 (to 20,025 million yuan).
The inference is clear: consumers were using their new smart mobile tools to aggressively shop price and convenience, and while most traditional retailers might be suffering, e-Commerce’s time had come. The rise of the digital age coupled by consumers’ need to stretch their dollars had created the conditions that retailers are still living with.
By the time of the January 2010 NRF “Big Show”, both retailers and technology companies understood that “this” was the new normal, and that the Retail world was not going to snap back to the way it used to be. Then-Walmart CIO Rollin Ford said to RSR at the conference: “Look at how our customers and members are using technology around the world. They are online, tweeting, blogging, and interfacing with technology. People are connected today. If technology is not part of your business plan or process, I think by definition, you’re behind. In the past, as long as you had good intentions, you could remain current with things, but, in our present world, technology is required to keep up with the mom of today around the world, the rate of change is too fast without it.”
Post-Recession (in 2016), Terry Duddy, the “inventor” of UK-based Argos “click & collect” capability (one of the earliest examples of how a retailer embraced omnichannel shopping as the new normal) stated, “Consumers today have more disposable income, are more confident, happy to shop across channels, more selective, and less loyal… they have retained the smart shopping habits developed in harder times... ‘Mobile’ and ‘price transparency’ drive their purchase decisions.”
Both of those statements are true, and underline the fundamental change that has occurred in the world since the Great Recession of 2008. Technology is required to keep up, and consumers will not forget the lessons they learned in the dark days. The triple threat from those days, the Recession and resulting insecurity of consumers everywhere, the rapid adoption of smart mobile technologies, and the rise of digital commerce, is still sending shock waves throughout the industry, and all of RSR’s research shows that retailers are still trying to cope with the implications.
So the dust still has not settled, and there may be more fallout still to come. Stay tuned – we’ll be there trying to shine a light on how today’s Retail Winners are turning the challenges created by the Great Recession into opportunity.
 According to RSR’s 2018 eCommerce benchmark study, The State Of Online Commerce 2018: High Hopes (RSR Benchmark, July 2018, p.7)